by Welcome to Traders Ideology, In today’s article is all about the Insurance sector i.e. 5 Best Insurance Stocks in India. We will see how to analyze a company and what all factors are important for Insurance companies before investing. In the end, we will talk about the 5 Best Insurance Stocks in India by Market Cap. let’s start First, we will start with the concept of insurance and what is it?
Concept of Insurance
- Insurance is a contract where an individual or entity receives financial protection against loss.
- Where the entity pays a premium against which the company compensates the entity against any loss.
- These insurance companies collect the premiums from different customers and keep them collected and does risk analysis and what amount of loss they need to pay to customers.
3 Most Important Things to look at in Insurance
There are 3 most important things to look at in Insurance Companies are as follows:
- Premium
- Policy Limit
- Deductibles
Premium
- The first being premium meaning how much premium you pay on any policy you take on,
- and the premium you pay acts as an income to the insurance company.
Policy Limit
- The second is the policy limit, which means the maximum amount you can claim.
Deductibles
- The 3rd is deductibles that are taken up by the companies so that there are no false claims.
Analysis of Insurance Company
- There are 2 major divisions, the first being life insurance that covers everything that is related to your life, term, life, etc.
- The other is general insurance that includes motor, property, business, etc.
- So when you analyze a company, you should see to the segments they work in before investing.
Diffrence Between General Insurance v/s Life Insurance
- Life Insurance has a long-term contract whereas General Insurance has short term contracts.
- In life Insurance you can pay periodically but in General Insurance, you have to pay lumpsum.
- Under life, you can claim if an unforeseen event happens or at maturity.
- On the other hand, in general, the claim can be made only when there is a loss or a special event.
- It is a low risk of concentration in life but is high in general insurance.
- Amount payable is clearly mentioned in the life insurance policy but in general, it depends on the loss incurred.
Understanding Terminologies of Insurance Company
- Let us now try to understand some terminologies that are relevant,
- The first is an Embedded Value which is the addition of discounted future values of the company.
- The next is the value of the New Business that tells us the new businesses the company has brought in and if you add it to EV, you can get a good perspective on the value of the company.
- The next is Expense Ratio that is the sum of all their expenses, and if discounted back gives a good sense of their profits.
- The next is Persistency, meaning how long a customer persists with the company, the more time they do the better for the company.
- The next is the Loss Claim Ratio, which measures the losses to the net premiums earned.
- The lesser it is the better for the company as they can retain more money.
Evolution of Insurance Companies in India
- Let us now see the timeline of the evolution of insurance companies in India.
- In 2000, the insurance sector was opened up for private players with an FDI cap of 26%.
- In 2010, IRDAI ULIPs regulations came to play, in 2013, guidelines for IRDAI traditional products were set up.
- In 2014, the FDI cap is raised to 49%, and recently in 2021, the cap is at 74%.
5 Best Insurance Stocks in India
Let us now see the top 5 insurance sector companies or 5 Best Insurance Stocks in India are as follows:
1. HDFC Life Insurance
- The first is HDFC Life with a market cap of 1.38L Cr
- And this is the company that owns the biggest retail HDFC pension fund with a share of 34%.
- The EV was 12471 Cr in 2017 and has seen a CAGR of 16.4% that is currently at 26617 Crores.
- The value of business also saw a CAGR of 18.8% and the persistency ratio rose from 81% in 2017 to 90% in 2021.
2. SBI Life Insurance
- The 2nd company is SBI Life Insurance with a market cap of 1.1L Cr and has a market share of 24%.
- The company gave 48.62% as 5-year returns.
- The EV was 16538 Crs in 2017 that gave a CAGR of 15.1% and is now currently at 33390 Crores.
- The value of the business has a CAGR of 17.6% and the persistency ratio was 81.07% in 2017 and is 87.92% in 2021.
- and the expense ratio at 5.94% from 8.04%.
3. ICICI Prudential Life Insurance
- The next is ICICI Prudential with a market cap of 88000 Crores.
- The company has given 5-year returns of 102%, the EV was 16184 Crs in 2017 with a CAGR of 12.5% and now is at 29106 Crores.
- The value of business saw a CAGR of 19.5% and they have brought their expense ratio down from 11.4% to 9.5%.
- the persistency ratio went from 85.7% to 87.1%.
4. ICICI Lombard General Insurance
- The next is ICICI Lombard general insurance with a market share of 12% and a market cap of 71000 Crores
- They have given a 5-year return of 132%, its loss ratio has reduced from 80.4% to 68.6% in FY21
- The expense ratio rose from 23.5% to 31.2%, and the combined ratio fell from 103.9% to 99.8%.
5. General Insurance Corp of India
- The last company is General Insurance Corp of India, GIC.
- Their market cap is 34000 Crs and they have given a -54.24% 5-year return.
- Their loss ratio rose from 81% to 92.4% in FY21.
- The expense ratio rose from 18.7% to 19.63% and the combined ratio rose from 99. 7% to 112.03%.
If you have liked this 5 Best Insurance Stocks in India article don’t forget to check 7 Midcap Multi-bagger Stocks, 6 BEST SMALL CAP Stocks India, or Top 3 AI Stocks in India. You will like both of them. I hope you found this insight to be useful and meaningful. One should follow the Risk Management, Money Management, and Fear and Greed concept of the market to avoid big losses.
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